The present invention relates to securitizing natural catastrophe risk.
A catastrophe bond is a financial instrument that represents an exchange of principal for periodic coupon payments, where the coupon payment and/or the return of the principal is linked to the occurrence of a specified natural catastrophe event. In a catastrophe bond transaction, the coupon payment is given to the investor up front, during the risk period associated with the catastrophe bond. In exchange, the investor posts the notional amount of the bond in an account or trust, such that the bond is fully collateralized and any credit risk is eliminated. If there is an event that exceeds the attachment point of the bond in the geographic region and during time period associated with the bond, some or all of the investors' principal is used to pay a sponsor under a reinsurance contract. If there are no trigger events in the relevant region during the relevant period, all of the principal is returned to the investors.